New Delhi: In a much needed relief for the middle class, Finance Minister Nirmala Sitharaman, while presenting Budget 2025 on Saturday announced that the income of Rs 12 lakh will be tax-free under the new Income Tax regime. The individual taxpayers will also be eligible to get benefits of standard deduction of Rs 75,000. Thus, the income of Rs 12.75 lakh will be tax-free.
However, several taxpayers might be wondering what is the tax slab announced by of 5 per cent on the income of Rs 4 to 8 lakh rupees. What does it mean after all? According to the Section 87A of the Income Tax Act, 1961, the government calculates the tax of the common man according to different income brackets, but does not charge the tax you generate. This is called a tax rebate. Along with the new tax regime, you also get this benefit in the old tax regime.
Old Tax Regime rebate benefit
The old tax regime still exists and several taxpayers still opt for this option. In this regime, your income of up to Rs 2.5 lakh is tax free, but the government does not charge any tax on income of up to Rs 5 lakh. In this system, a tax of Rs 12,500 is levied on your income ranging from Rs 2.5 lakh to Rs 5 lakh. The government does not recover it by giving rebate under Section 87A. Thus, your tax-free income becomes Rs 5 lakh.
Finance Minister proposed to revise tax rate structure as follows:
| 0-4 lakh rupees | Nil |
| 4-8 lakh rupees | 5 per cent |
| 8-12 lakh rupees | 10 per cent |
| 12-16 lakh rupees | 15 per cent |
| 16-20 lakh rupees | 20 per cent |
| 20- 24 lakh rupees | 25 per cent |
| Above 24 lakh rupees | 30 per cent |
Income Tax slab rate changes
Income Tax slab rate changes (Pic: PIB)
Calculation of new tax regime and tax slab
In the new tax regime, the government has increased the scope of benefits of income tax rebate. In July 2024, the government changed the slabs by making income of up to Rs 7 lakh tax free in the new tax regime in the budget. In this, with standard deduction, income of up to Rs 7.75 lakh was tax-free. Now, the government has made income up to Rs 12.75 lakh tax free.
In fact, if a person falls in the bracket of above the income of Rs 12 lakh, the tax bracket changes. Thus, the tax calculation is done according to the same bracket. Let’s understand this with the example of the tax slab.
Suppose an individual has an income of Rs 4 lakh, then the government will not charge any tax. But as soon as the person earns more than Rs 4 lakh, the 5 per cent tax bracket will be applicable. In this bracket, the maximum tax will be Rs 20,000 rupees. However, one will not have to pay this tax because of the tax rebate.
If the income exceeds Rs 8 lakh, the taxpayer will be placed under the tax bracket of 10 percent. On this, the maximum tax will levied on Rs 8-12 lakh and 10 percent of the income i.e. Rs 40,000 will be made. Also, the tax on income of Rs 4 lakh to Rs 8 lakh will be Rs 20,000 rupees, which will create a total tax of Rs 60,000. But the government will give you a rebate for this.
However, if the taxpayer’s income exceeds Rs 12 lakh, the individual will fall under the tax bracket of 15 percent and no tax rebate will be provided. Thus, 15 percent i.e. Rs 60,000 tax will be levied on Rs 4 lakh of Rs 12 to 16 lakh. Whereas, this will add tax of Rs 60,000 to the income of Rs 12 lakh. Thus, your total income tax will be Rs 1,20,000 if your income touches Rs 16 lakh.
There will be no Income Tax on annual income up to Rs 12 lakh under New Tax regime. Limit of Rs 12.75 lakh for salaried tax payers, with Standard Deduction of Rs 75,000. “There will be no income tax payable upto income of Rs. 12 lakh (i.e. average income of Rs.1 lakh per month other than special rate income such as capital gains) under the new regime. This limit will be Rs.12.75 lakh for salaried tax payers, due to standard deduction of Rs. 75,000,” Nirmala Sitharaman said in her Budget 2025 speech. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
